The oil producing countries need these prices to balance their state budgets

August 4, 2017: The oil producing countries need these prices to balance their state budgets

OPEC can no longer afford to ride out a wave of low oil prices that could last upwards of a decade or more in order to kill off rival production from places like the United States. That is because the major oil producers of the Middle East have dramatically higher spending levels than they did in the past. Ever since the Arab Spring, which saw widespread discontent and instability spread throughout the region, Saudi Arabia and other Gulf States had to shower their populaces in social spending in order to stave off rebellion. So, while they still have some of the lowest oil production costs in the world – costing just a few dollars to produce a barrel of oil – the real costs come from the broader government budget.

For example, the WSJ notes that the UAE can produce oil for about $12 per barrel, but it actually needs something like $67 per barrel to balance its budget – a fiscal breakeven price far above the prevailing market price for the last three years. But the UAE is far from the worst off. A report from Fitch from earlier this year, and reported on by Bloomberg, laid out fiscal breakeven prices for oil-producing countries: